Relief to Shapoorji Pallonji & Company Ltd , Tax Exemption for services provided to SEZ u/s 26  SEZ Act cannot be denied on  Procedural Lapse: CESTAT [Read Order]

The Mumbai bench of the Customs, Excise & Service Tax Appellate Tribunal( CESTAT ) in a ruling in favour of Shapoorji Pallonji & Company Limited, has held that exemption benefits extended to taxable services provided to SEZ under Section 26 of the Special Economic Zones Act, 2005 cannot be denied on the ground that certain procedures have not been followed 

 Shapoorji Pallonji & Company Limited, Nagpur the appellants herein is engaged in the business of providing taxable services under Section 65 (105) of the Finance Act, 1994. For this purpose the appellants have registered themselves with the jurisdictional service tax authorities and have obtained service tax registration certificate No.AAACS6994CST020. The appellants also avail CENVAT credit of central excise duty paid on inputs and capital goods, as well as service tax paid on input services as per the provisions of CENVAT Credit Rules, 2004 ( ‘CCR’). 

Read More: CESTAT Dismisses Appeal Due to Inordinate Delay Beyond Limitation Period, Upholding FAA’s Order

During the course of audit conducted by the Department on the books of account maintained by the appellants, the Department had enquired about the appellant’s availing of exemption benefit under Notification No.12/2013-ST dated 01.07.2013. On scrutiny of the documents and the books of accounts for the period October, 2013 to March, 2015, the Department had interpreted that the appellants have not fulfilled certain requirements for availing the duty exemption viz., conditions of the notification dated 01.07.2013, Special Economic Zone Rules, 2005 and the circulars issued thereon. The Department had initiated show cause notice proceedings for demand of CENVAT Credit availed by the appellants on various grounds.

The Principal Commissioner in the impugned order dated 29.03.2016 had confirmed the demand of service tax amounting to Rs. 2,57,03,974/- along with interest; however, he extended the benefit of cum-tax-value of taxable services by reducing the amount of demand to the extent of Rs. 31,77,011/-, and imposed penalties under Section 76, 77 of the Finance Act, 1994.Feeling aggrieved with the impugned Order, the appellants have filed this appeal before the Tribunal. 

How to Audit Public Charitable Trusts under the Income Tax Act Click Here

The appellants have availed exemption from payment of service tax in respect of output services provided to SEZ in terms of Section 26 of the SEZ Act, 2005. The said legal provision giving exemption of service tax read with Section 51 ibid provide overriding effect to any other law, which if it contradicts or inconsistent to the extent it is provided in the SEZ Act. Further, he stated that Rule 10 of the SEZ Rules, 2005 for giving permission for procurement of items is not applicable to their case, as these are meant for the purpose of establishing of SEZ and not relevant for the exemption provided under Section 26 ibid and therefore the confirmation of adjudged demands on such basis is not sustainable.

The issues in dispute in the present case viz., non-production of Form A-1 and Form A-2, nonfulfilment of conditions prescribed in the notifications issued by the department under the Customs/Central Excise/Finance Acts and thereby denying the exemption from payment of service tax has been examined by the Tribunal and the High Court in the following cases and it was held that the demand of service tax is not sustainable.

Read More:Bagasse’ Not a Manufactured Product: CESTAT Sets Aside Demand Under Rule 6 of CCR

On the other hand, Authorised Representative for Revenue reiterated the findings of the Principal Commissioner in the impugned order, and submitted that in order to claim exemption, the appellants has to provide the documents mentioning the name of the contractor, even though it is supplied to SEZ and in the absence of the same, exemption cannot be extended to them.

 It is on record that the required documentation was not available for the entire period of the dispute but, at the same time, it cannot be denied that at some point, the eligibility did exist. The procedural infirmities, for a shorter or longer time, does not in any way supplant the exemption accorded to the impugned supply of services. Furthermore, the findings of the adjudicating authority do not arrive at a conclusion that, but for the said procedural infirmities, the eligibility of the appellant to render such services without payment of tax was in question.

GST READY RECKONER: Complete Topic wise Circulars, Instructions & Guidelines Click here

A two member bench of  S.K. Mohanty, Member (Judicial) and M.M. Parthiban, Member (Technical) viewed that exemption benefits extended to taxable services provided to SEZ under Section 26 of the Special Economic Zones Act, 2005 cannot be denied on the ground that certain procedures have not been followed or certain conditions prescribed in the notification have not been fulfilled. The bench  set aside the order  to the extent it had confirmed the adjudged demands proposed in the SCNs.

To Read the full text of the Order CLICK HERE

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates